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Full text of "ANNUAL REPORT - ONTARIO ENERGY BOARD (fiscal year ended March 31, 1985)"

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http://archive.org/details/annualreportonta1985onta 



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Ontario 
Energy 
Board 



Twenty-fifth Anniversary 
ANNUAL REPORT 



Fiscal Year Ended — March 31, 1985 



% >Cop* 



opte^-avraflable for $8.00 prepaid from the Ontario 



Government Bookstore, 880 Bay Street, Toronto. 

• 
Qut-of-teWn customers please write (enclosing cheque 
or money Order payable to the Treasurer of Ontario) to 
The Ministry of Government Services, Publications 
Services Section, 5th Floor, Toronto, Ontario M7A 1 N8. 

Telephone: Toronto: (416) 965-6015 
Toll free: 1-800-268-7540 
Northwestern Ontario: 0-Zenith 67200 



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TABLE OF CONTENTS 



Letter from the Minister of Energy 
The Honourable Vincent G. Kerrio 



Message from the Chairman 

Robert W. Macaulay, Q.C 5 

Managing Energy in Ontario 6 

Role of The Ontario Energy Board 7 

Jurisdiction of The Ontario Energy Board 8 

Organization of The Ontario Energy Board 9 

Public Hearings at The Ontario Energy Board 11 

Activities of The Ontario Energy Board: 

April 1 , 1 984 - March 31, 1 985 15 

Natural Gas Rate Reviews 16 

Natural Gas Pipeline Construction 20 

Pipeline Exemptions 21 

Accounting Orders 21 

Certificates and Franchises 21 

Permits to Drill 21 

Other Orders 21 

Cost Awards to Hearing Participants 22 

Application to Acquire Shares: 22 

Inter-City Gas Corporation, 

ICG Resources Ltd., Vigas Propane Ltd, 

and Norcen Energy Resources Limited 

Reference to Review Take-over: 23 

Union Enterprises Ltd. by Unicorp 

Canada Corporation ^£*3MS^^, 

Reference to Review Ontario Hydro Rate /// • -^^S^ 23 

Proposal - Effective January 1, 1985 111 Y^ 



Energy 
Ontario 



Minister 



Ministry 

of 

Energy 



56 Wellesley St. West 
1 2th Floor 
Toronto, Ontario 
M7A 2B7 
416/965-4286 
Telex 06217880 



September 30, 1985 



To The Honourable Lincoln M, Alexander 



Lieutenant Governor of the Province of Ontario 



MAY IT PLEASE YOUR HONOUR: 



I take pleasure in submitting the Annual Report of the Ontario Energy Board for the 
fiscal year ended March 31 , 1 985. 

This year marks the twenty-fifth anniversary of the Board since its creation in 1 960 
under the Ontario Energy Board Act. This special edition of the Annual Report 
commemorates these twenty-five years of service in the Province of Ontario. 



Respectfully submitted, 




Xii<c^ 



Vincent G. Kerrio 
Minister of Energy 



MEMBERS OF THE ONTARIO ENERGY BOARD 




From left to right: Harvey ft Chatterson, John C. Butler, Patrice E. Boisseau, Richard ft Perdue, Orville J. Cook, 
Bunli Yang, Donald H. Thornton, Robert W. Macaulay, Marie C. Rounding, Denis A. Dean. 
Absent: Robert H. Clendining, immediate past Chairman, Ian C. MacNabb, immediate past Vice-Chairman, 
John D. McFadyen, Member. 



4 



MESSAGE FROM THE CHAIRMAN 



Twenty-five years ago, the Ontario Energy Board Act 
was enacted by the Ontario legislature. 

It is a time to look back, just as it is a year to take stock 
of where we are heading in the future. 

In 1 960 natural gas deliveries to Ontario from western 
Canada were beginning to escalate. Ontario Hydro was 
working very hard to keep up with demand while 
developing the last of its major hydraulic sites. 

When the Ontario Energy Board Act was introduced, 
the natural gas utilities had misapprehensions about 
the widespread regulatory powers of the Board and the 
creation of the new Ministry of Energy Resources. 
Through patience and understanding, the regulated 
industry and the Board have developed an excellent 
working arrangement based upon mutual respect for 
the task of the other. 

During the early and even middle years of its life this 
Board struggled with a number of problems ranging 
from inflation to regulatory lag. These problems were 
compounded by the major changes that were occurring 
in the energy and economic environment. Nothing 
seemed to stay put for more than a moment. 

During the late 1960's and early 1970s as the oil crisis 
developed in the Middle East, as natural gas prices and 
inflation soared, as Ontario Hydro turned to nuclear 
generation and as the public became conservation 
conscious, the challenges for distributors and 
regulators multiplied and diversified. Legislative 
changes were made to adapt to the new economic 
environment. 

During these years, this Board decided on hundreds of 
natural gas applications and conducted over a dozen 
major reviews of Ontario Hydro rates. The Board has 
reported to the Lieutenant Governor, the Minister of 
Energy and the Minister of Natural Resources upon a 
substantial array of energy related matters. These 
years have provided the Board with a wealth of 
experience upon which the future can be built. 

We believe that the Government, the industry and the 
public will be able to rely on this Board to carry out the 
public duties entrusted to it. A strong nucleus of 
resources and expertise is in place to handle whatever 
duties are given to us by the Legislature. 



Our facilities have been greatly improved. A working 
public library and reference section has been added 
and the expertise of the staff strengthened. The Board's 
organization has been restructured with the addition of 
a new computer and data bank so that we can perform 
more efficiently internally and better monitor the 
performance of natural gas utilities. The Board co- 
sponsored the creation of the Canadian Conference of 
Administrative Tribunals because we believe that 
administrative boards have a key role to play in the 
future and can learn from each other. 

In the next decade, we expect many changes in our 
regulatory environment that could well make this period 
different from any period faced by this Board or any 
other Board in North America before. 

Energy shortages have turned to excess supply and 
capacity. There is a move away from a tight regulation 
of rates and conditions of service of all consumers to 
deregulation in some industrial consumer sectors. This 
may lead to producer-distributor and producer- 
consumer alliances. The Board's role may well change 
from a "hearing forum" to one of administering certain 
aspects of the industry. Whatever road this Board does 
or does not take, it is clearly no longer adequate for this 
Board merely to respond to what is presented in 
evidence in the hearing room. 

Whether this Board will be asked to assume greater or 
less responsibility is a matter that the Government will 
decide. But as this Report indicates, the Board is 
positioning itself to fulfil whatever role the Government 
assigns to it and looks forward to the next twenty-five 
years with confidence. 



Yours truly, 




V 



Robert W. 
Chairman 



lacaulay 




MANAGING ENERGY IN ONTARIO 



The foundation of the economy and the comfort and 
well being of the Province of Ontario rests 
fundamentally on the supply of energy at reasonable 
prices. 

It is impossible to conceive of a province like Ontario, 
with a high standard of living and reasonable levels of 
production and employment, without an abundant and 
reliable supply of low cost energy. 

A slight change in energy prices can turn black ink to 
red for industry and alter the economic prospects of the 
regions in which it is located. 

Energy distribution and pricing has to be properly 
managed. Regulators and administrators like this Board 
face a number of challenges in the next decade. 

One challenge regulators and utilities already face is 
the question of market share. Natural gas utilities have 
never competed directly in Ontario. Regulation 
prevented free competition that would have resulted in 
redundant construction and higher costs for the natural 
gas consumer. But there are other forms of energy 
competing against each other for new customers in a 
relatively mature and static market. Close to 40 percent 
of the energy consumed in Ontario comes from oil, 31 
percent from natural gas, 16 percent from electricity, 
nine percent from coal and four percent from other 
sources. At some time or another, depending on the 
circumstances in the market, these forms are all natural 
competitors. 



This Board is constantly faced with the larger question 
of the roles of these forms of energy in Ontario and 
how the needs of Ontario's economy can best be 
served by them. Wasteful and expensive competition 
can be avoided if some attempt is made to 'rationalize' 
the supply and distribution of energy in this province. 

The utilities are in a quandary about what to do with 
excess capacity, particularly during off peak periods. 
Utilities face another challenge and that is to shape 
consumer demand, shifting it away from peak to off 
peak periods. An optimum match of the customers' 
needs with the utilities' needs should ultimately mean 
lower costs for the customer. Regulators have a 
responsibility to ensure stability in prices and reliability 
of service but must also acknowledge the importance 
of flexible rate design and incentive programs to allow a 
utility the opportunity to meet its revenue requirement 
while meeting customers' needs. 

Deregulation in the energy sector is another challenge 
facing regulators and utilities in the coming decade. 
The advent of deregulation will not necessarily mean 
less regulation but rather different ways to ensure that 
affordable prices are available to users. Regulators may 
allow utilities greater freedom in determining rates for 
industrial and commercial customer sectors. 




ROLE OF THE ONTARIO ENERGY BOARD 



The Board essentially has four major duties: 

1 . To fix the rates of natural gas utilities. 

2. To review rate proposals of Ontario Hydro. 

3. To report on references. 

4. To administer certain Legislative Acts. 

1. FIX RATES OF GAS UTILITIES 

The rates which the gas utilities charge to their 
customers must be approved by this Board before they 
go into effect. The Board has the authority to require 
each utility to come before it from time to time to justify 
a change in rates or the continuation of a rate which 
may then be in effect. Rates are to be "just and 
reasonable" for both the customers of a utility and its 
shareholders who must have the opportunity to earn a 
fair return on their investment. The Board also 
considers the quality of the service which gas 
companies provide to their customers. 

This type of regulation is common in North America 
where a gas utility is given a designated service 
territory within which it has no competition from another 
gas distributor. Regulation is thus created to be sure 
that the utilities charge reasonable rates and provide 
safe and reliable service. 

A major gas rate hearing takes the staff, and a panel 
usually of three members hearing the case, 
approximately two or two and a half months in 
preparation, approximately three weeks in the hearing 
and an additional two months to write the decision. 



2. REVIEW RATE PROPOSALS OF 
ONTARIO HYDRO 

Whenever Ontario Hydro proposes to change its rates 
it must submit such a proposal to the Minister of Energy 
who then refers it to this Board. The Board reviews 
Ontario Hydro's bulk power rate proposals (wholesale 
rates to municipalities and certain industrial customers 
having an average power demand of 5,000 kilowatts or 
more). The reference from the Minister does not usually 
lead to as broad a consideration as that for a gas utility 
application because certain elements are excluded 
such as Ontario Hydro's system expansion program. 
The Board's recommendations are not binding on 
Ontario Hydro. Ontario Hydro may or may not choose 
to implement the Board's recommendations. 

Preparations for a Hydro rate hearing continue 
throughout the year and intensive staff work begins in 
February. The hearing commences in June and runs 
about four weeks. Panel members and staff take 
another two months to prepare the Board's report. 



3. REPORT ON REFERENCES 

From time to time, the Lieutenant Governor in Council, 
the Minister of Energy or the Minister of Natural 
Resources may refer a matter to the Board that 
requires a public hearing and a Board report. These 
references normally concern matters of energy and 
generally attract widespread public interest. Public 
hearings permit the presentation of evidence and 
argument by individuals, public interest groups and the 
industry under an informal but controlled environment. 
The Board report is only advisory in nature. 

References as a rule take some two months of 
intensive preparation and may take up to eight weeks 
in hearings, and two months to prepare the report. 
Normally three members of the Board sit on these 
references. 

The Board may also conduct generic hearings on 
matters under its own jurisdiction. In 1984, a hearing 
dealt with the public participation in our hearing 
process and the awarding of costs either prior to the 
hearing, during the hearing or subsequent to the 
hearing. Decisions on generic hearings take the form of 
a report. 

4. FUNCTIONS UNDER CERTAIN 
LEGISLATIVE ACTS 

In addition to the Ontario Energy Board Act, the Board 
has jurisdiction arising from provisions in several other 
statutes (see "Jurisdiction of the Board"). All of them 
address the regulation ot_energy-related matters. Most 
of them are related to the activities of natural gas 
utilities. The Board deals with a number of matters 
arising from these statutes ih particular The Petroleum 
Resources Act and The Municipal Franchises Act. 
Public hearings are scheduled where there is a 
statutory requirement. The time involved in these 
matters varies with each case. 



JURISDICTION OF THE ONTARIO ENERGY BOARD 



The Board's jurisdiction is both regulatory and advisory 
and arises from the Ontario Energy Board Act and the 
provisions of several statutes enumerated below. 

UNDER THE ONTARIO ENERGY 
BOARD ACT 

Approves rates and charges for the sale, distribution, 
transmission and storage of gas. 



UNDER THE MUNICIPAL 
FRANCHISES ACT 

Approves the terms of by-laws granting a utility a 
franchise to supply and distribute gas to a municipal 
corporation and renews the terms of such franchises. 

Grants certificates of public convenience and necessity 
to construct works and to supply gas in municipalities. 



Ensures compliance by gas utilities with the Uniform 
System of Accounts. 



Grants leave to construct pipelines and related 
facilities. 



Grants authority to expropriate land for pipelines and 
related facilities and authorizes pipelines to cross 
highways, utility lines and ditches. 

Recommends to the Lieutenant Governor in Council 
designated gas storage areas, authorizes their use and 
determines compensation payable to landowners. 



UNDER THE PETROLEUM 
RESOURCES ACT 

Advises the Minister of Natural Resources on applica- 
tions for a licence to inject, store or remove gas and 
other related permits and licences. 



UNDER THE PUBLIC UTILITIES ACT 

Rules on municipal claims that a utility has contravened 
municipal by-laws prohibiting the distribution and sale 
of gas containing sulphuretted hydrogen. 



Approves gas storage agreements and permits a 
transmitter or distributor to use the empty space of a 
storage company. 

Unitizes the interests in gas and oil spacing units and 
pools. 

Reports to the Lieutenant Governor in Council on 
applications by a utility to sell its assets or amalgamate 
with another utility and on applications by persons to 
acquire shares of a gas utility which would result in a 
holding of more than 20 percent of such shares. 

Reports to the Lieutenant Governor in Council on 
energy matters referred to the Board. 

Examines and reports to the Minister of Energy on 
Hydro rates and rate-related matters, pursuant to 
references from the Minister. 



UNDER THE ASSESSMENT ACT 

Decides whether certain gas pipelines are transmission 
lines for assessment purposes. 



UNDER THE TORONTO DISTRICT 
HEATING CORPORATION ACT, 1980 

Fixes steam rates for certain customers of the Toronto 
District Heating Corporation, formerly the Toronto 
Hospitals Steam Corporation, upon appeal by the 
customer. 



8 



ORGANIZATION OF THE ONTARIO ENERGY BOARD 



LOCATION 

The Ontario Energy Board occupies two floors in a 
downtown Toronto office on Carlton Street. The office 
has two large public hearing rooms, a reference library, 
meeting rooms, computer facilities and staff offices. 
Public hearings are sometimes held outside Toronto at 
locations convenient to the public. 



BOARD MEMBERS AND STAFF 

The Chairman and Board members are appointed by 
the Lieutenant Governor in Council. The Chairman was 
appointed for a five year term and members are usually 
appointed for three years. The Board, currently consists 
of nine members, including lawyers, engineers, 
economists and accountants. 

The Board employs close to 30 full-time staff, including 
support staff that have special or technical knowledge 
in matters relating to Board hearings. Legal counsel are 
engaged to conduct major hearings and the Board 
frequently retains outside consultants to advise and 
testify during the proceeding. 



WORKLOAD 

The Board dealt with over 100 applications or 
references in the year. Each application was different 
and put varying demands on the time and resources of 
Board staff. Applications from utilities ranged from a 
simple request to adjust an internal accounting 
procedure to a major construction project which 
affected natural gas rates for all its customers, or a 
major application to adjust rate levels and rate 
structures. Each matter was handled individually, and 
the coordination and scheduling of these various 
applications was carefully planned. 

Work on a major application usually starts two or three 
months before a hearing. For rate applications, a utility 
submits detailed financial data supporting its request for 
a rate increase. Ontario Hydro alone submits about 
5,000 pages of evidence that includes highly technical 
and statistical data. This material is reviewed by 
Technical Services staff to ensure it is accurate and 
up-to-date. Interrogatories are prepared by staff if more 
information is required or the data already submitted is 
incomplete. During a rate hearing, a utility may receive 
in excess of one hundred interrogatories from Board 
staff and intervenors. 



COMPUTER SERVICES 

The Board acquired a computer data processing 
system to help it with the tremendous volume of 
material. The computer enables staff to do in-depth 
analysis of the material and eases the administration of 
moving information to and from the utility. The staff now 
have the capacity to perform modelling exercises to 
assist in the review of the application. 




LIBRARY AND MICROFILM SERVICES 

Other services at the Board are making information 
more readily available to staff and to public groups 
participating in hearings. A new reference library 
includes periodicals and other current information on 
regulation and the natural gas industry. Previous Board 
cases are now in a convenient microfilm library and 
available to anyone wishing to research previous 
decisions. 



PUBLIC INQUIRIES 

The Board Secretary handles general inquiries on 
applications before the Board regarding procedural 
matters. Intervenors may also seek advice from the 
Technical Staff so that they can participate in the 
hearing process. 

















































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10 



PUBLIC HEARINGS AT THE ONTARIO ENERGY BOARD 



Public input is fundamental to every Board inquiry. 
Applications or references are dealt with in public 
hearings held at the Board offices in Toronto or at 
locations convenient to interested and affected parties. 

Interested parties may participate in a hearing once 
they have filed an intervention with a brief explanation 
of the reasons for intervening. 

APPLICATIONS, REFERENCES AND 
BOARD MOTIONS 

The Board Secretary will schedule a hearing upon 
receipt of an application from a natural gas utility, a 
reference from the Lieutenant Governor in Council or a 
reference from the Ministers of Energy or Natural 
Resources to consider an energy-related matter. 
Sometimes the Board will initiate a proceeding to 
consider a matter under its jurisdiction. 



NOTICE OF HEARING 

Once the application is filed and the Board has 
determined the scope and probable length of the 
hearing, all parties are notified. The Board Secretary 
directs the Applicant to publish and serve notice on all 
affected parties and interested public groups. 

For major rate cases, a utility will publish 
announcements of its application in regional daily 
newspapers and personally serve notice on municipal 
clerks in the utility's service area. The Board Secretary 
will also direct the utility to notify parties of the time and 
place of the hearing. 




ONTARIO PIPELINE COORDINATION 
COMMITTEE 

Applications to construct a pipeline are referred 
immediately to the Ontario Pipeline Coordination 
Committee. The Committee represents a number of 
government ministries concerned with the impact of a 
construction proposal on the environment. It is chaired 
by a Board staff member and includes representatives 
from the following Ministries: 

Agriculture and Food 

Citizenship and Culture 

Consumer and Commercial Relations 

Energy 

The Environment 

Municipal Affairs and Housing 

Natural Resources 

Transportation and Communications. 

The Committee sets out steps a utility must take before 
the application is set down for hearing. Route selection 
and environmental impact studies are a necessary part 
of pre-filed evidence and are usually reviewed by 
Committee members and outside consultants before 
being tabled as evidence in the hearing. The 
Committee handles inquiries from affected groups who 
have particular concerns about a construction project. 

PRE-FILED EVIDENCE 
& INTERROGATORIES 

Evidence in support of an application is filed with the 
Board two or three months before the hearing. The 
Board staff or intervening parties normally seek 
additional information by way of interrogatories. Utilities 
answer interrogatories concerning the pre-filed 
evidence before the hearing commences. 



'FIRST DAY' PROCEEDINGS 

Before the main hearing commences, the Board panel 
reviews procedural matters, technical issues and the 
general approach to the hearing with interested parties. 
This gives everyone the opportunity to become familiar 
with the application and to identify all the issues they 
wish to address in the hearing. 



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THE HEARING 

At a hearing, the Board ensures that sufficient evidence 
is presented, tested and put on the record. The utility 
bears the onus of proving its need for the rate increase 
it has applied for. The Board usually hears the utility 
first through written evidence and witnesses who testify 
on its behalf. Interveners and Board staff then question 
these witnesses and, to strengthen their position, may 
offer their own witnesses. These witnesses, in turn, may 
be cross-examined by the utility. The proceedings are a 
matter of public record and transcripts are available at 
the Board's office. 

When all the evidence has been given, each party has 
an opportunity to interpret what has been presented in 
the form of argument which may be either written or 
oral. A Board decision follows and, depending on the 
complexity of the case, will be published a few weeks 
or a few months later. 



BOARD DECISION 

The Board summarizes its findings in either a 
document called "Reasons for Decision" or a "Report." 
All the issues and arguments raised in the hearing are 
discussed and dealt with in this report. 



BOARD ORDER OR 
RECOMMENDATION 

The Board Order is a legal document directing the 
implementation of a Board decision. The order is 
binding on a natural gas utility and may, in some cases, 
involve other parties like a municipality or an industrial 
customer. When the Board reaches a decision on 
Ontario Hydro or another energy-related matter, a 
Report is made to the appropriate Minister who may or 
may not implement the Board's recommendations. 

REVIEW AND APPEALS OF BOARD 
ORDERS 

A decision of the Board may be challenged in a 
number of ways. Parties may apply to the Board 
requesting that it review or amend the order it has 
issued. Parties may also petition the Lieutenant 
Governor in Council requesting that the Board's 
decision be altered or reheard. A decision of the Board 
can also be appealed to the Divisional Court providing 
that it is based upon a question of law or jurisdiction. 



13 




14 



ACTIVITIES OF THE ONTARIO ENERGY BOARD 
APRIL 1, 1984 TO MARCH 31, 1985 



The Board dealt with 107 applications from natural gas 
utilities, five references from the Ministers of Energy 
and Natural Resources which included a review of 
Ontario Hydro, and a reference from the Lieutenant 
Governor in Council to consider the Unicorp/Union 
takeover. 



The following table lists all the applications and 
references heard. Summaries of the major cases follow. 



TYPE OF APPLICATION 


NO. OF APPLICATIONS 


Natural Gas Rate Reviews (EBRO) 


3 


Interim Rate Reviews (EBRO) 


8 


Pipeline Construction & 
Expropriations (EBLO) 


8 


Pipeline Exemptions (PL) 


2 


Accounting Orders (UA) 


5 


Franchise Approvals (EBA) 


35 


Certificate Approvals (EBC) 


37 


Permits to Drill (EBRM) 


4 


Other Orders (EBO) 


9 


Reference from the Lieutenant 
Governor in Council (EBRLG) 


1 


Reference from Minister of Energy 
for Ontario Hydro (HR) 


1 


TOTAL 


113 




15 



NATURAL GAS RATE REVIEWS 



Three natural gas distributors applied to the Board for 
annual rate increases: Northern and Central Gas 
Corporation Limited, Natural Resource Gas Limited and 
Inter-City Gas Corporation. Although the main rate 
application from Union Gas Limited was heard in the 
previous fiscal year, the case was re-opened in August 
1 984 to settle a security deposit matter. The 



Consumers' Gas Company Ltd. did not apply for an 
increase in rates in 1985. 

Listed in the table but not described in this report are 
eight interim rate applications from utilities seeking 
minor rate increases to recover higher costs attributed 
in the main to higher wholesale natural gas prices. 



NORTHERN AND CENTRAL GAS CORPORATION LIMITED (NORTHERN) 

Northern serves approximately 140,000 customers in 
northwestern, northern and eastern Ontario. It 
distributes gas to more than 1 00 communities in an 
area extending from Kenora to points 200 miles along 
the shores of Lake Ontario and the St. Lawrence River. 



The application was filed June 6, 1 984, and after three 
months of preparation, was heard in September. The 
Board's decision was issued on December 28, 1984. 



Northern projected a revenue deficiency of $7,186,600 
for its 1 985 test year and proposed to recover it from its 
fixed rate customers. 

The following table shows the key financial elements of 
Northern's final submission and the Board's decision. 
The previous Board decision for the 1 984 test year is 
shown for comparison purposes. 



EBRO 396 
Previous 

Board 
Decision 

Dec. 28/83 



EBRO 399 

Final 

Northern 

Submission 



EBRO 399 
New Board 

Decision 
Dec. 28/84 



TEST YEAR ENDING DECEMBER 31 



1984 



1985 



1985 



Rate Base ($000's) 

Utility Income ($000's) 

Indicated Rate of Return on Rate Base 

Cost of Capital 
Long-term Debt 
Preference Shares 
Accumulated Tax Deferrals 
Common Equity 

Allowed Rate of Return on Rate Base 

Revenue Deficiency ($000's) 



273,715.0 


308,137.3 


308,137.3 


31,683.9 


37,953.9 


37,953.9 


1 1 .58% 


12.32% 


1 2.32% 


12.55% 


1 2.86% 


1 2.86% 


6.16% 


6.28% 


6.28% 


3.00% 


3.00% 


3.00% 


1 5.75% 


1 6.50% 


1 5.75% 


1 2.98% 


1 3.46% 


1 3.23% 


7,820.4 


7,186.6 


5,722.5 



Northern has recently attempted to diversify its 
customer base through the introduction of aggressive 
sales programs aimed at residential and commercial 
customers. Northern proposed several changes to its 
rate structure, two of which were accepted by the 
Board. 

(1 ) An adjustment to the residential and general 

service rate so that customers having similar load 
characteristics were treated in the same manner. 



(2) An extension of the winter period rate for the 
interruptible industrial customers. 

The Board accepted the utility's interim deficiency of 
$1 ,652,000 during the period August 1 to December 31 , 
1984. The resulting rate increase reflected the gas cost 
changes which had become effective on February 1 
and August 1 , 1 984. These increases were collected 
from all firm customers in the western and northern rate 
zones. 



16 



NATURAL RESOURCE GAS LIMITED (NRG) 



NRG is a relatively small utility serving approximately 
1,750 customers in Aylmer and surrounding communi- 
ties. NRG purchases its natural gas from Union, 
Consumers' and a number of local producers. 

NRG filed its application on February 21 , 1 983. The 
question of whether NRG should pay a security deposit 
to Union caused a delay in a decision for its test year 
ending September 30, 1984. The Board approved an 



interim $40,000 increase in revenues to the company 
and the final Board's decision was issued on 
October 19, 1984. 

The following table shows the key financial elements of 
NRG's final submission as well as the Board's decision. 
Data from the previous Board decision is shown for 
comparison purposes. 





EBRO 373 
Previous 

Board 
Decision 

Aug. 31/82 


EBRO 393 

Final NRG 

Submission 


EBRO 393 
New Board 

Decision 
Oct. 19/84 


TEST YEAR ENDING SEPTEMBER 30 




1982 


1984 


1984 


Rate Base 


$1,141,347 


$1,623,000 


$1,620,000 


Utility Income 


$ 78,763 


$ 187,955 


$ 187,634 


Indicated Rate of Return on Rate Base 


6.90% 


1 1 .58% 


1 1 .58% 


Cost of Capital 
Debt 

Preference Shares 
Common Equity 


1 8.25% 

9.00% 

1 6.50% 


1 3.77% 

9.00% 

1 6.50% 


1 3.77% 

9.00% 

1 6.25% 


Allowed Rate of Return on Rate Base 


1 5.92% 


1 4.03% 


1 3.93% 


Revenue Deficiency 


$ 205,879 


$ 77,840 


$ 77,700 




17 



INTER-CITY GAS CORPORATION (INTER-CITY) 



At the time of the application, Inter-City was distributing 
gas to the communities of Fort Frances and Rainy 
River. Its largest customer in the area is Boise Cascade 
Canada Limited. 

Rate increases since 1982 have been dealt with 
through a series of interim hearings. A mam hearing, in 
which the Board undertook a complete review of the 
utility's financial status, was held on May 23, 1984. 

Inter-City proposed a rate of return of 13.23% and a 
2.4666 cents/mcf increase to its existing rates. 



The Board decided that it would be in the customers' 
and shareholders' best interests to grant the 13.23% 
rate of return, resulting in an increase of 2.3054 
cents/mcf to its rates. The Board issued its decision on 
June 22, 1984. 

The following table summarizes the key financial 
elements of the rate proposal and the Board's decision. 
Data from the previous Board decision is shown for 
comparison purposes. 



EBRO 374 
Previous 

Board 
Decision 

Apr. 29/82 



EBRO 389 

Final 

Inter-City 

Submission 



EBRO 389 

New Board 

Decision 

June 22/84 



TEST YEAR ENDING DECEMBER 31 



1980 



1984 



1984 



Rate Base 

Utility Income 

Indicated Rate of Return on Rate Base 

Cost of Capital 
Long-term Debt 
Common Equity 

Allowed Rate of Return on Rate Base 

Revenue Deficiency 



$1,068,116 


$1 


,378,800 


$1 


i ,357,600 


$ 32,617 


$ 


139,500 


$ 


139,500 


3.05% 




10.12% 




1 0.28% 


9.15% 




1 1 .38% 




1 1 .38% 


1 5.50% 




1 6.00% 




1 6.00% 


1 1 .69% 




1 3.23% 




1 3.23% 


$ 104,330 


$ 


85,830 


$ 


80,220 




18 



UNION GAS LIMITED (UNION) 



Union is the second largest gas distributor in Ontario, 
serving approximately 490,000 customers in 
southwestern Ontario. Union also operates a network of 
pipeline, storage and compression facilities to provide 
service to its customers and other utilities in eastern 
Ontario and Quebec. 

Union filed an application in September 1983 to 
increase rates for its 1 985 test year. The Board heard 
the application in December 1983, January and March 
1 984 and re-opened the case in August to consider 



Union's requirement for a security deposit from Natural 
Resource Gas Limited, one of its wholesale customers. 
The utility rate increase proposal was based on a 
projected revenue deficiency of $25.3 million. The 
Board found Union's revenue deficiency to be 
$731,000 and no rate increase was granted. 

The following table shows the key financial figures in 
Union's final submission and the Board's subsequent 
decision. The Board decision for the 1 984 test year is 
shown for comparison. 



EBRO 388 

Previous 

Board Decision 

Apr. 22/83 



EBRO 397 

Final 

Union 
Submission 



EBRO 397 

New Board 

Decision 

Apr. 24/84 



TEST YEAR ENDING MARCH 31 



1984 



1985 



1985 



Rate Base ($000's) 

Utility Income ($000's) 

Indicated Rate of Return on Rate Base 

Cost of Capital 
Long-term Debt 
Short-term Debt 
Preference Shares 
Common Equity 

Allowed Rate of Return on Rate Base 

Revenue Deficiency ($000's) 



809,150 


832,781 


830,281 


85,364 


95,870 


105,503 


1 0.55% 


11.51% 


12.71% 


1 1 .96% 


12.01% 


12.01% 


1 0.75% 


11.10% 


1 0.50% 


9.90% 


1 0.05% 


1 0.05% 


1 5.60% 


1 6.25% 


1 5.60% 



12.65% 



39,355 



1 3.00% 



25,315 



1 2.75% 



731 



Certain elements of the Board's decision are listed 
below. 

The capital budget forecast for the test year was 
reduced by $5 million. 

Union's request to adopt incremental accounting 
procedures in the capitalization of overheads was 
denied. 

Union's forecast of the cost of long-term debt was 
accepted and the cost rate for short-term debt was 
reduced to 10.5 percent. 

Union proposed an increase in its deemed common 
equity component from 29 percent to 30 percent and 
an increase in the return on common equity from 
1 5.6 percent to 1 6.25 percent for the test year. Both 
these proposals were denied. 



The Board concluded that Union had not undertaken 
sufficient mitigation efforts to reduce or eliminate the 
premium costs of purchasing Synthetic Natural Gas 
(SNG) under its agreement with Petrosar. 
Continuation of the amortization of Accounts 1 and 2 
was approved, but without any costs relating to 
Account number 3 in Union's cost of service for 
1 985. A refund of $1 4.7 million arising out of an 
overpayment of the Canadian Ownership Special 
Service Charge and the Natural Gas and Gas 
Liquids Tax for volumes exported to Transco since 
1980 was re-allocated between Accounts 1, 2 and 3. 

The Board concluded that Union should continue 
collecting taxes in rates on the normalized tax basis. 

Rate schedules, customer classification and rate 
classes remained unchanged. 



19 



NATURAL GAS PIPELINE CONSTRUCTION 



THE NORTH SHORE PROJECT 

Northern applied to the Board on October 30, 1 984, for 
leave to construct a 1 70 kilometer pipeline from 
Sault Ste. Marie to the communities of Blind River and 
Elliot Lake. 

The pipeline is designed to serve Rio Algom Limited & 
Denison Mines in Elliot Lake and Eldorado Resources 
Ltd. in Blind River and the commercial and residential 
markets in these communities. Northern wished to 
commence work on rocky and swampy sections in 
January 1985 and to continue with major construction 
during the summer and fall of 1 985. The Board 
convened a hearing in Sault Ste. Marie on 
December 18, 1984 and continued with hearings in 
January 1985. 



construction. The hearing dealt with landowner 
concerns about route selection, construction standards 
and safety, and easement agreements. The Board 
heard detailed evidence on procedures to clear and 
slash woodlands, methods to strip, trench and restore 
agricultural soils and to conduct wet and dry river 
crossings. 

The Board issued its decision on January 22, 1 985 with 
written reasons to follow. The Board concluded that the 
proposed pipeline was in the public interest and, 
subject to certain conditions, the Board granted the 
company leave to construct, certificates of public 
convenience and necessity, and franchise approvals 
relating to the project. 



Northern projected that the pipeline would cost 
$51 ,664,1 00, of which $30 million could be recovered 
under the Federal Department of Energy, Mines & 
Resources' Distribution System Expansion Program 
(DSEP). 

There was an unusually high level of public interest in 
the project, particularly from landowners affected by the 



OTHER PIPELINE CONSTRUCTION 

The Board received two other applications for leave to 
construct during the fiscal year. The Board granted 
permission to Union to replace pipeline in Thamesville 
and to Consumers' to extend a transmission line in 
Kemptville. 




20 




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PIPELINE EXEMPTIONS 

Under special circumstances, the Board may exempt a 
utility from obtaining permission to construct a 
transmission or distribution line. During the fiscal year, 
the Board granted exemptions to Esso Petroleum 
Canada for the construction of a six inch pipeline in the 
City of Sarnia and to Union Gas for the construction of 
pipeline in the Townships of Moore and Sombra. 

ACCOUNTING ORDERS 

Under the Ontario Energy Board Act, the Board has the 
authority to determine accounting procedures of gas 
utilities in the province. A utility wishing to adjust its 
accounting practices to reflect changes in its cost of 
natural gas, for instance, must receive Board approval. 
During the fiscal year, the Board issued six accounting 
orders to Union, Consumers' and Inter-City. 

CERTIFICATES AND 
FRANCHISES 

The Board granted 28 certificates of public 
convenience and approved the terms and conditions of 
23 municipal franchise agreements relating to 
Northern's North Shore pipeline construction project. 

The Board also granted eight certificates of public 
convenience to Union for a pipeline extension in 
Lambton County and approved the terms and 
conditions of 1 1 franchise agreements between Union, 
Consumers' and their respective municipalities. 

PERMITS TO DRILL 

A utility applies to the Minister of Natural Resources 
under the Petroleum Resources Act for permits to 
inject, store or remove natural gas from designated 
storage areas. These applications are referred to the 
Ontario Energy Board for review and approval. In 
February 1984, Union applied for permits to drill two 
wells in its Dawn Gas Storage Pool and three wells in 
its Payne Gas Storage Pool, both located in Lambton 
County. The Board recommended permits for these 
applications. 

OTHER ORDERS 

During the fiscal year, the Board approved storage 
contracts or amendments to storage contracts for 
Consumers', the Kingston Public Utilities Commission 
and TransCanada PipeLines Limited. 



21 



COST AWARDS TO HEARING PARTICIPANTS 



In the interests of encouraging participation in public 
hearings, the Board held a generic hearing to examine 
its current practices of awarding costs to hearing 
participants. 

The public hearing convened on November 20 and 21 , 
1984, following publication of Notice of Hearing in 43 
Ontario newspapers on August 29, and a personal 
mailing of the Notice to all participants in Board 
hearings during the previous ten years. 

Eighteen of the twenty-two parties who sent in written 
submissions in response to the Notice also participated 
in the hearing. 

Since the hearing was intended to deal with policy 
options that could be applied in the future to the 
Board's statutory discretion to award costs, nine 
members of the Board sat as the panel. 



This Report will be commented upon in the next Annual 
Report of the Board, since it was completed after the 
fiscal year ended. 

The Board reserved its report when the hearing 
adjourned. The report was issued on June 1 2, 1 985. 

A reference was taken to the Supreme Court of Ontario 
to ascertain whether this Board has authority to grant 
costs which are sometimes known as "funding" prior to 
or during a hearing. The Court advised the Board that 
The Ontario Energy Board Act does not permit it to 
"fund" public participation, and that the Board is limited 
to the issuing of costs in the same fashion as a court. 



APPLICATION TO ACQUIRE SHARES 



INTER-CITY GAS CORPORATION, 
ICG RESOURCES LTD., 
VIGAS PROPANE LTD. AND 
NORCEN ENERGY RESOURCES 
LIMITED 

Inter-City Gas Corporation ("Inter-City"), ICG 
Resources Ltd. ("Resources"), and Vigas Propane Ltd. 
("Vigas") and Norcen Energy Resources Limited 
("Norcen") filed with the Board concurrent applications. 
Under subsection 26 (2) of The Ontario Energy Board 
Act, a utility requires the approval of the Lieutenant 
Governor in Council for the acquisition of 20% or more 
of any class of shares of a natural gas utility. 

Inter-City, Resources and Vigas proposed to acquire 
1 00 percent of the common shares of Northern and 
Central Gas Corporation Limited ("Northern") which 
were at the time owned by Norcen. The agreement also 
proposed a simultaneous acquisition by Norcen which 
would result in Norcen owning 34.7 percent of the 
voting First Preference Shares of Inter-City. The Board 
heard the applications together. 

The effect of the proposed transactions on the public 
interest was fundamental to the inquiry. The hearing 
addressed the question of whether or not a parent 



company affects a utility's cost of service and whether, 
in this instance, Inter-City was as strong financially as 
Norcen. The agreement, particularly the transfer to 
Inter-City of a $47.3 million note owed to Northern by 
Norcen, was examined to determine its impact on the 
general public. 

Inter-City's operational and organizational plans with 
respect to Northern and possible conflicts of interest 
were also reviewed 

The Board concluded in its final report that the 
transaction, as proposed, was not in the public interest. 
The Board felt that the financial health of a parent 
company could affect the utility's cost of service and 
that Inter-City was not as strong financially as Norcen. 
Without certain safeguards, Northern would not be able 
to maintain its ability to meet commitments to its 
customers at a reasonable cost. The Board did 
recommend, however, that with the provision of a 
guarantee from a chartered bank for the $47.3 million 
note and with certain undertakings by Inter-City, the 
transactions be approved. 



22 



■ 



REFERENCE TO REVIEW TAKE-OVER 



PlINION ENTERPRISES LIMITED 
BY UNICORP CANADA 
CORPORATION 

On February 1 , 1 985, Unicorp Canada Corporation 
announced an offer fo purchase all of the outstanding 
shares of Union Enterprises Limited, the parent 
company of Union Gas Limited. This take-over attempt 
was resisted by the Directors and management of 
Union and there followed an acrimonious and widely 
publicized take-over battle. In the end Unicorp was 
successful in acquiring approximately 60% of the 
common shares of Union. These shares represented 
approximately 48% of the votes attached to all of 
Union's outstanding shares. 

On February 1 5, 1 985, following a hearing by the 
Ontario Securities Commission, the Lieutenant 
Governor in Council issued an Order requiring the 
Ontario Energy Board to hold a public hearing with 
respect to the matter. The Board was ordered to 
examine and report on the probable and potential 
impact of the acquisition on Union, its present and 
future customers, and energy supply in Ontario. As well 



the Board was asked to examine the need for, or 
desirability of, the public review and regulation of both 
the direct and indirect ownership and control, and 
transfers thereof, of gas distributors and transmitters in 
Ontario. 

Without this Order-in-Council, the Board would not 
have had jurisdiction to enquire into this matter. The 
current Ontario Energy Board Act, subsection 26 (2), 
requires the approval of the Lieutenant Governor in 
Council for any acquisition of 20% or more of any class 
of shares of a natural gas utility but not for the 
possibility of a take-over or change of control of a 
holding company which owns or controls a natural gas 
utility. 

The hearing commenced on March 1 3, 1 985 to deal 
with a number of procedural matters. The hearing was 
then adjourned to April 9, 1985. 

The Board issued a lengthy report to the Minister, dated 
August 2, 1985. This report will be commented upon in 
the next Annual Report of the Board since it was 
submitted after this fiscal year concluded. ~? 



REFERENCE TO REVIEW ONTARIO HYDRO RATE 

PROPOSAL 



r 



EFFECTIVE JANUARY 1, 1985 

Ontario Hydro's proposal to change its rates effective 
January 1 , 1 985, was referred to the Board by the 
Minister of Energy on April 1 6, 1 984. 

The hearing commenced May 29 and concluded on 
June 29, 1984. The Board reported to the Minister of 
Energy on August 30, 1984. 

Hydro originally proposed an average all customer rate 
increase of 9.1 percent. This increase was based on a 
revenue requirement for 1 985 of $4,1 86 million, an 
increase of $474 million over the level of revenue 
expected in 1984. The revenue requirement included a 



provision for net income of $360 million. Adjustments 
made to the revenue requirement during the hearing 
affected the net income and rate increase figures. The 
net income would be reduced to $308 million if the 
9.1 percent increase was implemented. If the net 
income was left at the proposed level of $360 million, 
an average rate increase of 1 0.3 percent would be 
required. 

In its Report to the Minister, the Board recommended 
that the proposed 1985 revenue requirement be 
reduced by $71 million, thereby lowering Hydro's 
average rate increase to 8.6 percent. 



23 




24 



JUN 3 1992